NIO, a Chinese EV-maker, has seen many analyst upgrades and target price increases recently. The turnaround in analysts' sentiment could just be them catching up to NIO's stock price, which has risen by more than 1,000 percent in 2020.
Is it a time to buy NIO stock or should you sell after such a steep surge in the stock? What can investors expect from the company in 2021?
Analysts upgraded NIO and raised the target
In the last few weeks and months, many analysts have turned positive on NIO. The company posted strong third-quarter results, which encouraged some analysts to turn positive on NIO stock. Recently, Daiwa initiated a buy on NIO stock on Dec. 14 and a target price of $59. The analyst thinks that NIO is “the distinguished premium” electric vehicle maker in China.
Deutsche Bank sees multiple EV winners with the “Fab Four” being NIO, Xpeng, Li Auto, and WM Motor. The Deutsche Bank analyst thinks that along with Tesla, these EV-makers are “increasingly destined to conquer” the Chinese auto market.
On Dec. 1, Goldman Sachs upgraded NIO to neutral from sell. The analyst admitted that he underestimated the benefits to NIO from powertrain breakthroughs, the introduction of battery-as-a-service, and regulatory incentives. The stock’s target price was raised from $7.7 to $59. In June, I noted that investors shouldn't worry about Goldman Sachs's downgrade since:
- Analysts’ actions usually lag stock price movements.
- Goldman Sachs was still positive on NIO’s fundamentals.
Apart from the above-mentioned upgrades, Northeast Securities initiated coverage on NIO with an overweight rating and a target price of $55 on November 27. Citi also sees “upside risks” for NIO after its “largely in-line” third-quarter report. JPMorgan Chase also boosted NIO's target price to $50 from $46 and kept an overweight rating on Nov. 18 after the company’s solid fourth-quarter sales guidance.
NIO faces competition
While a lot gets written about the rising competition in the Chinese EV market, it shouldn't be a big problem for NIO. Currently, the main market EV-makers are focused on market share from traditional automakers. NIO CEO William Li also mentioned that EV’s market share remains minuscule. He said that Tesla and NIO are allies. Both of the companies are trying to expand at the cost of ICE (internal combustion engine) cars.
Deutsche Bank thinks that NIO, Xpeng, Li, and WM Motors are the emerging class of automakers and are destined to conquer the Chinese auto market. Therefore, given the potential of the market, there could be multiple EV winners in the Chinese market. NIO should definitely be one of the winners due to its brand loyalty, focus on quality, and improving execution with increasing sales and deliveries.
Is it time to buy NIO stock?
While NIO stock has a lot of potentials, after a more than a 1,000 percent rise in the stock, will it be wise for investors to buy the stock? Many analysts have turned positive on NIO. Analysts’ actions usually lag stock price movements. Despite analysts' enthusiasm, is the upside in NIO stock limited? The answer to this question lies in the potential catalysts for NIO, which are still abundant.
On NIO Day, which will likely be in early to mid-January, the company could make some announcements about new products or markets, which could give the stock another boost.
The announcements about NIO's first sedan and the next vehicle platform at NIO Day are important for the stock. Some of the existing things might not be fully priced into the stock, including its battery-as-a-service option. Therefore, long-term investors can keep accumulating the stock on dips due to its long-term potential. The valuation of the companies that have just started on their upward march usually looks stretched in the initial phases. Over time, the revenues and earnings justify the valuations, which could be the case with NIO too.